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Why SunPower Corporation's Shares Jumped 32% in February

Earnings weren't great on the surface, but investors still pushed SunPower's shares higher in February on hopes for the future.

What happened

Shares of solar manufacturer SunPower Corporation(NASDAQ:SPWR) jumped 31.9% in February, according to data provided by S&P Global Market Intelligence, after earnings gave investors some hope for the future.

So what

Fourth quarter 2016 earnings were great, with net loss coming in at $275.1 million, or $89.0 million when you remove one-time charges. But the residential market is showing signs of life, and SunPower is up to the #2 position in the market, with gross margins of around 20% if you pull out restructuring charges. And in commercial solar the company has the #1 position in the U.S.

Image source: SunPower.

These aren't enough to offset weakness in the utility solar market, but improvements in smaller scale solar may be a foundation the company can build on. And with the highest efficiency solar panel on the market, SunPower should be able to leverage its technology to expand market share in residential and commercial solar.

Investors are also pondering the likely increase in demand coming in 2018, when utilities around the world are signing solar projects to be built. The falling costs of solar plants have made the energy source competitive with fossil fuels, and if demand grows next year as expected we could see a surge in revenue and margins for large players like SunPower.

Now what

Some of the gains in February have already worn off, but the long-term story is that SunPower is managing its way through 2017 in the hopes of better financials in 2018 and beyond. The company's success will depend on maintaining strong margins in residential solar and transitioning to a lower cost P-Series panel for utility projects, which leverages the commodity solar cell market. The further along the year goes, the more likely it is that SunPower will live to see the brighter days ahead in solar. It may be a wild ride for investors, but this recovery in SunPower's stock could be a sign that the market is seeing better days ahead for the company's financials.